The company also forecast a small profit, excluding onetime items, for the second quarter, though sales are expected to fall almost 14% from a year earlier.

The results -- while expected -- helped fuel a campaign by investor activist Carl Icahn to win a seat on the company's board of directors. In a letter to shareholders Wednesday afternoon, the billionaire called Motorola "a troubled company" and accused its current board of directors of a "lack of oversight and engagement."

"Today's earnings conference call reaffirmed my belief that Motorola has a passive and reactive Board, which failed to timely steer management in the right direction, and carries significant responsibility for the predicament in which Motorola finds itself," Icahn wrote in the letter.

In its own statement, Motorola
MSI, -0.33%
countered that Icahn has little experience in the wireless communications industry. It also said that Icahn already serves on as many eight other boards, including four seats as chairman.

"Icahn is under informed about our business and overcommitted elsewhere," the statement read.

The issue will come to head at Motorola's annual meeting, which is scheduled for May 7 in Chicago, near the company's headquarters.

Shares of Motorola closed trading up 1.5% at $18.22 Wednesday.

Handset sales on the decline

In the first three months of 2007, meanwhile, the Schaumburg, Ill.-based technology giant reported a net loss of $181 million, or 8 cents a share. That compared with earnings of $686 million, or 27 cents a share, in the same quarter a year ago.

Revenue fell 1.8% to $9.43 billion from $9.61 billion, as sales from Motorola's mobile devices division dropped 15% to $5.4 billion. The vendor shipped 45.4 million handsets, down 31% from a company record 65.7 million in the final quarter of 2006.

Excluding onetime costs and discontinued operations, Motorola said it would have earned 2 cents a share, in line with analysts surveyed by Thomson Financial.

It was the second consecutive quarter in which Motorola warned of disappointing results. The company that introduced ultra-thin handsets to the mobile industry faces stepped up competition from rivals such as Nokia Corp. and Samsung, which now sell their own sleek, feature-rich handsets.

In 2005 and 2006, Motorola increased its share of the global handset market thanks to booming sales of Razr phones. Yet that product line, while still a top seller, produces less profit than it used to because of steep price cuts. And fickle consumers have been reluctant to embrace costlier replacement models such as the Krzr.

In emerging markets, meanwhile, Motorola sought market share at the expense of profit, and the company is now retreating quickly from that approach. The altered strategy largely accounted for the steep drop in handset shipments, pushing Motorola's estimate of global market share to 17.5% from 23.3% at the end of 2006.

Chasing profits, not market share

"These numbers reflect our decision to adopt a more disciplined approach to pricing and stop chasing market share for the sake of market share," Greg Brown, Motorola's new chief operating officer, said during a conference call with analysts.

The earnings disappointments have pressured Motorola's stock, which has slid about 15% so far this year to its lowest trading range since the summer of 2005. The company has also reshuffled its executive ranks and is cutting several thousand jobs to reduce costs.

"We have got to make money," Chief Executive Ed Zander said.

For the second quarter, Motorola said it expects to generate a profit of 2 cents to 3 cents a share, excluding onetime items, on revenue of about $9.4 billion.

Wall Street had been predicting the company to report earnings of 8 cents a share for the second quarter on revenue of $9.99 billion, according to Thomson Financial.

For the year, analysts are looking for earnings of 49 cents a share on revenue of $41.5 billion.

Wall Street in wait-and-see mode

Most of the early reactions from analysts Wednesday took a neutral stance on Motorola, saying the company likely needs a few more quarters to dig itself out of its slump in handset sales.

"The weight is now shifting to execution: Can Motorola deliver on the action plan?" asked Ittai Kidron of CIBC World Markets, who has a sector perform rating on the stock. "We believe it'll take another two quarters before investors get a clear answer."

Richard Valera of Needham & Co. also kept a hold rating on the stock, but said downside "may be limited at current levels, supported by the company's strong balance sheet, aggressive stock buyback and modest (though not trough) valuation," he wrote in a report.

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